Transnational Anti-Corruption Law in Action:

Cases from Argentina and Brazil

Kevin E. Davis New York University School of Law

Guillermo Jorge San Andrés University School of Law

Maíra Rocha Machado São Paulo Law School of Fundação Getulio Vargas

Draft of March 24, 2014

Abstract

Debates over whether transnational and international legal institutions are effective or legitimate responses to local misconduct have an important empirical dimension. We use case studies to challenge the claim that foreign legal institutions serve as effective and legitimate complements to local anti-corruption institutions – the institutional complementarity theory. The first case study centers on proceedings concerning bribes paid by subsidiaries of Siemens AG, a German company, to obtain and retain a contract to provide national identity cards—among other things—for the Argentine government. The second case study examines events stemming from overbilling in the construction of a courthouse in Brazil.

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1. Introduction

Anti-corruption law is now remarkably transnational in scope. A potent set of

legal mechanisms permitslegal institutions in one country to regulate and provide redress

forto corrupt acts involving public officials from other countries. The most prominent of

those mechanisms allow authorities to (i) prosecute firms and individuals who pay bribes

to foreign public officials and (ii) help recover corruptly procured assets transferred

overseas. These mechanisms are generally created by national law but are supported and

inspired by a burgeoning set of international norms. The sources of the relevant

international norms include: :the Organization for Economic Cooperation and

Development’s Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions (“OECD Convention”);the United Nations

Convention against Corruption (“UN Convention”); the anti-corruption policies of

international financial institutions; certain components of the international anti-money

laundering regime that has been developed by the Financial Action Task Force (FATF);

international norms governing government procurement; and, private law principles

concerning enforcement of corruptly procured contracts in international fora.

The emergence of transnational anti-corruption law has coincided with intense

debates about the effectiveness and legitimacy of enforcement of legal norms by foreign

or international institutions. One of the main general concernsis that the rights of

defendants will be compromised if they are subject to surprising forms of liability or have

to respond to proceedings in multiple jurisdictions or in inaccessible fora applying

unfamiliar procedural rules. There are also concerns about interfering with law

enforcement efforts of the states which arguably have the greatest interest in regulating

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official corruption, namely, the states in which the officials are located. This kind of

interference may be not only counter-productive, but also illegitimate, because foreign

officials are not primarily accountable to members of the most affected societies.

Transnational anti-corruption law is largely immune to the charge that it risks

imposing surprising forms of liability on defendants. There appears to be widespread

agreement about substantive anti-corruption norms and a global consensus around the

idea that it is important for legal institutions to try to uphold the integrity of public

officials.

Concerns that enforcement of transnational anti-corruption law will unfairly

burden defendants with multiple proceedings or interfere with local anti-corruption

initiatives are potentially more troubling. The most compelling response lies in a set of

claims that we call the “institutional complementarity theory”. In an era marked by

massive foreign direct investment and easy international wire transfers, the actors and the

assets involved in corrupting a country’s public officials will often be located outside its

borders and beyond the reach of local legal institutions. Moreover, because of the power

that many public officials wield and the sums of money under their control, corrupt

officials and their collaborators will tend to be relatively sophisticated, or at least have

access to sophisticated legal and financial advice. Under these conditions there is good

reason to fear that defendants will easily be able to deflect purely local enforcement

actions or, worse yet, will not face any enforcement actions at all. At the same time,

foreign and local agencies have common interests in combatting at least transnational

forms of corruption and their combined efforts may be complementary. The institutional

complementarity theory holds that rather than generating duplicative proceedings and

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interfering with local enforcement efforts, transnational anti-corruption law allows

foreign institutions to play a valuable role in avoiding impunity and buttressing

overmatched local anti-corruption institutions (Rose-Ackerman 1999: 177-197; Rose-

Ackerman 2013).

The institutional complementarity theory rests on important assumptions about the

relative capabilities of local and foreign anti-corruption institutions, the costs of

intervention by foreign institutions, and the extent to which foreign institutions are

accountable to members of the affected society. These assumptions are empirical ones,

but much of what we know about their validity is anecdotal (Davis, 2010). In an effort to

address this lacuna we have conducted in-depth case studies of two sets of legal

proceedings, one from Argentina and one from Brazil. Each case involves both local and

foreign institutions responding to allegations of high-level political corruption. In one

case foreign institutions were involved mainly in the prosecution of bribe-payers. In the

other case foreign institutions were involved primarily in the recovery of assets that

represented the proceeds of bribery.

More specifically, the first case centers on bribes paid by subsidiaries of Siemens

AG, a German company, to obtain and retain a contract to provide national identity

cards—among other things—for the government of Argentina. The contract was worth

over US$ 1 billion and in order to secure it Siemens Argentina made questionable

payments totaling over US$ 100 million between 1997 and January 2007. Several

investigations of the contract were initiated by Argentine authorities but those were

largely ineffectual. Meanwhile though, the Munich Public Prosecutors’ Office together

with the US Department of Justice and the Securities Exchange Commission launched

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their own investigations into the worldwide activities of Siemens AG, investigations that

ultimately led to both criminal and civil proceedings in both countries. Siemens AG paid

a combined total of more than US$ 1.6 billion in fines, penalties and disgorgement of

profits to the US and German authorities to resolve those proceedings. Siemens also

admitted to having violated the FCPA as well as German law in connection with the

Argentine ID card project as well as projects in Iraq, Bangladesh and Venezuela. Those

admissions initially reinvigorated a previously dormant criminal investigation in

Argentina. However, the Argentine push faded as the case lost international momentum.

Our second case is from Brazil. It stems from the construction of a courthouse for

a Regional Labor Tribunal (“TRT”). From 1992 until work was suspended by court

order in July 1998, the Federal government made payments toward the project totaling

R$ 226 million. A subsequent audit found that only R$ 63 million was actually used in

the construction of the building, leaving R$ 169 million unaccounted for (roughly US$ 82

million at January 30, 2013 exchange rates). Various proceedings were launched against

the principals of several of the construction companies involved as well as two public

officials. One of those officials was Nicolau dos Santos Neto, a former lay judge and

President of the Regional Labor Tribunal, who became an icon of corruption scandals in

the country. The other was Luis Estevão, a businessman who eventually became the first

person in the history of the country to be expelled from the Senate. In 2012 Estevão again

made headlines by agreeing to return R$ 468 million (roughly US$ 235 million) to the

Brazilian treasury, the largest amount ever recovered in a Brazilian corruption case (AGU

2012). Both Neto and Estevão were found to have transferred some of the proceeds of

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corrupt acts overseas. Those transfers led to the institution of legal proceedings in several

distinct fora in Brazil, Switzerland and the United States.

Our decision to examine transnational anti-corruption law through its application

in specific instances reflects a particular understanding of the concept of transnational

law. Transnational law involves regulation of “actions or events that transcend national

frontiers” (Jessup 1955: 2).1 That regulation rarely involves a single society’s legal

institutions. Rather, it often involves the combined efforts of local, foreign and

supranational institutions. Transnational law is sometimes presented as a body of rules

which have cohered into one or more “regimes” (Teubner and Korth 2010), or even a

“legal order” (Shaffer 2011: 236). It can also be imagined, however, as a rather disorderly

series of interactions between local, foreign and supranational legal institutions, prompted

by specific actions or events, with each set of interactions both being shaped by and

shaping the institutions involved.2 This study is informed by our sense that this second

model best characterizes transnational anti-corruption law.

Part 2 below provides an overview of the study, including the theoretical

motivation and the design of the empirical analysis. Parts 3 and 4 set out the information

we collected about each of our cases. Part 5 discusses the implications for the

1 An alternative definition of transnational law focuses on the transnational construction and flow of norms.

See Shaffer (2011: 234-236).

2 This understanding of transnational law is related to the recursive process of lawmaking described by

Halliday 2009 and Shaffer 2011, but places more emphasis on the role of law enforcement. It is also

consistent with the conception of multi-level global governance in international law enforcement described

in Burke-White 2005.

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institutional complementarity theory. Part 6 concludes by identifying the directions for

further research suggested by our findings.

2. Overview of the study

2.1 Theoretical backdrop

There are intense debates about the effectiveness and legitimacy of transnational

and international mechanisms that allow authorities in one country to sanction conduct

that occurs in other countries. Recent flashpoints have included the extraterritorial

enforcement of U.S. antitrust and securities laws, French efforts to regulate hate speech

on the Internet, and the assertion of universal jurisdiction over international crimes

(Parrish 2009). Analogous debates surround international tribunals such as the

International Criminal Court and the ad hoc international criminal tribunals for Rwanda

and the former Yugoslavia, which also permit conduct that occurred in one country to be

sanctioned by authorities from outside the country (Chehtman 2010). The proponents of

these sorts of transnational and international regulatory initiatives claim that they are

necessary and appropriate responses to impunity. Critics describe them as acts of legal

imperialism (see, for example, Mattei 2003).

Some critics are concerned about the impact that broad assertions of jurisdiction

will have on the interests of defendants (Goldsmith and Krasner 2003). First, defendants

may be unfairly judged against substantive norms of which they had no notice, in

violation of the fundamental principle of legality. Second, this approach will permit

multiple proceedings to arise from the same incident. Multiple proceedings may be both

inefficient and unfair to defendants. Third, relatedly, it may be unfair to subject

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defendants to proceedings in foreign jurisdictions that most likely will be conducted in

accordance with unfamiliar procedural rules and relatively inaccessible.

Critics also fear that foreign actors will impede local authorities’ efforts to

respond to predominantly local misconduct. An important source of concern is that

foreign authorities will be relatively unaccountable to members of the affected society.

Some argue that as a result, transnational or international proceedings necessarily lack

legitimacy (see, e.g. Duff 2010). Others critics focus on the likely consequences of this

lack of accountability. There is a general concern that foreign actors will regulate

selectively and in accordance with their own material interests. This may lead them to

launch proceedings in cases where the costs to local society outweigh the benefits, as in

cases in which local actors have opted to provide leniency or even amnesty to potential

defendants (Goldsmith and Krasner 2003).

A standard response to complaints about legal imperialism is the claim that

transnational or international institutions can and should complement rather than

undermine weak local institutions. Where local institutions are too weak to generate

local proceedings the concern about multiple proceedings is obviated, and in these

conditions there is no reason to expect any local proceedings that take place without

international assistance to be either fair, effective or legitimate. The idea of institutional

complementarity is enshrined in the Rome Statute that creates the International Criminal

Court (Article 17) and has been recommended as a guiding principle for the ad hoc

international criminal tribunals (Alvarez 1999).

These debates about the efficacy and legitimacy of transnational and international

law, and especially international criminal law, have direct application to transnational

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anti-corruption law. The concern about legality is muted by the fact that norms against

corruption have largely been harmonized as a result of the widespread adoption of

multilateral instruments such as the OECD Convention and, more recently, UNCAC.

Otherwise, transnational anti-corruption law manifests the same tension between the

urgency of confronting impunity and fear of legal imperialism that we observe in

international criminal law (compare Nichols 1999 and Salbu 1999). Most significantly

for present purposes, the idea that foreign anti-corruption institutions can and should

complement local institutions – the institutional complementarity theory – plays a

significant role in the discourse that explains and justifies transnational anti-corruption

law (Davis 2010; Rose-Ackerman 2013).

In this context the institutional complementarity theory is based on two

foundational claims: 1) local institutions have limited capacity to address political

corruption and, 2) foreign institutions bring to the table valuable resources that local

institutions are unable to match. These premises in turn support the conclusions that

transnational law enforcement will enhance the effectiveness of local anti-corruption

institutions – in other words, local and foreign institutions will be complements – and that

it will reduce corruption (see generally, Davis 2010).

The most obvious example of a resource that foreign institutions are uniquely able

to provide is the ability to deploy coercive force in the foreign territory. Foreign courts,

law enforcement agencies and other branches of the state typically regulate the use of

force within their territory quite closely and so may be indispensable in efforts to arrest

individuals or seize assets located overseas.

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Foreign institutions may also have access to superior information. This is

particularly plausible in cases where corruption involves collusion between local officials

and corporations operating on a transnational scale. Information about corporate

misconduct tends to flow from firms’ employees, regulators, competitors or financiers.

With the advent of globalization, those sources can just as easily be located outside the

jurisdiction of the corrupt official as inside. Courts and law enforcement agencies in a

corrupt official’s jurisdiction are less likely to have access to foreign sources than the

courts and law enforcement agencies in the jurisdictions where the headquarters and most

employees are located.

Foreign institutions may also be better able to process whatever information is

available about a corruption case. In other words they may have superior expertise, either

across the board, or in relation to specific aspects of the investigation or prosecution, or

to specific forms of misconduct. For instance, foreign prosecutors may possess special

expertise in forensic accounting, asset tracing or money laundering techniques; or, they

may have special insight into the tactics that will induce whistleblowers in their

jurisdiction to come forward.

Foreign institutions may be particularly valuable because they are not impeded by

local political obstacles. If corruption has compromised local legal institutions then

foreign intervention may be the only viable response. Foreign actors may be inherently

less corruptible than local institutions – whether because they have been selected more

carefully or because they are subject to more effective schemes of monitoring, rewards

and punishments. Perhaps more plausibly, even if they are no less corruptible than local

institutions, foreign institutions are less likely to have been corrupted in a way that

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impairs their ability to deal with the local problem. Local actors will find it relatively

difficult to establish illicit relationships with foreign legal institutions that allow to them

to subvert the course of justice.

The institutional complementarity theory holds that these kinds of contributions

will have positive effects on both local and anti-corruption institutions and the broader

societies in which they operate. Those effects may be felt well beyond the specific cases

in which foreign institutions have intervened. For instance, in the course of an

investigation foreign authorities might share information about investigative techniques

that local institutions can use in subsequent cases. There may also be demonstration

effects. Foreign enforcement actions that hold corrupt firms or officials accountable can

publicize the nature and extent of corruption in a society and, if successful, undermine

perceptions of impunity. The result can be new awareness among local actors – including

not only anti-corruption officials but also members of business, civil society and the

public sector – of what can or should be done to combat corruption. Local media may

play a critical role in this process.

The institutional complementarity theory can be challenged on several fronts

(Davis 2010). To begin with, the theory is most persuasive in cases in which

transnational corruption is a significant problem and local legal institutions have limited

resources, expertise and independence. These conditions do not always exist. Moreover,

local media or political institutions can often serve as substitutes for local legal

institutions (Power and Taylor 2011: 256-7).

The theory’s assumptions about the relative strength of foreign institutions are

also contestable. In general, attempts to shore up weak legal institutions from abroad do

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not have a promising track record. Ineffectiveness, ignorance of appropriate solutions to

local problems and, occasionally, self-interest on the part of foreign actors often

undermine externally-driven efforts to improve legal institutions and enhance respect for

the rule of law (see generally, Davis and Trebilcock 2008). These concerns can carry

over to transnational anti-corruption law.

No matter how well-intentioned and competent they might be, there are inherent

limits to the ability of foreign anti-corruption institutions to influence local actors and

activity. Like all institutions, foreign anti-corruption institutions are subject to resource

constraints. But the most significant constraints on the effectiveness of foreign

institutions stem from the fact that are typically unable to deploy coercive force within

the local territory, or at least not without the cooperation of the local government. As a

result, it is difficult to punish, or sometimes even investigate, local participants in corrupt

activities. So long as they remain at home, public officials and their assets are typically

beyond the reach of foreign institutions. The same is true of corrupt private actors, such

as bribe-payers, whose operations are entirely local.

There are other reasons why the net benefits of intervention by foreign anti-

corrution institutions may be low, or even negative. To begin, foreign anti-corruption

institutions may have particular biases and blind spots when they operate across borders.

Foreign actors may not have the interests of the local population at heart and may prefer

to devote scarce institutional resources to issues that affect their own populations. They

may also be unfamiliar with the best ways of addressing corruption in a distant society.

Of course if foreign interventions are unsuccessful the effects are potentially just as far-

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reaching as the effects of successful interventions. For example, a failed prosecution

might demoralize a population and cement views that impunity is ineradicable.

Another line of attack focuses on the claim that foreign intervention will serve to

enhance the effectiveness of local institutions. Foreign and local institutions may be

substitutes rather than complements. For example, prosecuting multinational corporations

for paying bribes or seizing proceeds of corruption that have been transferred overseas

may reduce the marginal benefits of prosecuting corrupt public officials locally. In this

scenario foreign intervention will undermine rather than enhance the effectiveness of

local institutions. At first glance this represents only a partial rejection of the institutional

complementarity theory. In the short term a society might benefit from foreign

interventions that serve as substitutes for local action. But what if the displaced local

institutions would have improved over time and eventually surpassed their foreign

counterparts? In this scenario the use of foreign institutions as substitutes for local anti-

corruption institutions will lead to a net decline in the effectiveness of all anti-corruption

activity in a society. That would be a fundamental contradiction of the institutional

complementarity theory.

Finally, there is the fact that institutional complementarity theory does not

respond to concerns about the potential illegitimacy of transnational law enforcement –

foreign anti-corruption institutions may be complementary yet illegitimate.

Accountability is widely considered to be the key determinant of legitimacy. Foreign

anti-corruption institutions typically are not accountable to the general public in the

societies most affected by their activities. The local public generally has only the most

indirect input into the drafting of multilateral anti-corruption treaties; little or no input

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into the formulation of policies adopted by the various international, inter-governmental

and non-governmental organizations involved in transnational anti-corruption efforts; no

input into the drafting of foreign legislation that is enforced extra-territorially; and no say

in the appointment of foreign compliance officers, police officers, prosecutors and judges

who implement the regime. These problems are exacerbated by the fact that many anti-

corruption institutions are considered to be part of the criminal justice system. It is

conventional to grant organizations and individuals charged with enforcing criminal law

norms a fair amount of independence from political control. Another factor is that some

of the institutions that perform critical roles in the transnational anti-corruption regime

are conventionally viewed as private in nature. The best examples are the compliance

programs adopted by private firms and the norms adopted by commercial arbitrators.

Traditionally, these sorts of private institutions have not been governed by the sorts of

legal mechanisms that serve to make public actors accountable to the general public. For

all these reasons foreign institutions will often struggle to achieve legitimacy in the eyes

of local actors.

2.2 Methodology

This study represents a modest initial step toward the ultimate aim of conducting a

comprehensive evaluation of transnational anti-corruption initiatives. Its aim is to

provide a small-scale examination of transnational anti-corruption law in action with a

view to exploring some of the challenges to the institutional complementarity theory.

The empirical analysis focuses on cases in which institutional complementarity

theory is most likely to represent a valid response to concerns about legal imperialism.

The logic behind this approach is that if the institutional complementarity theory is not

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valid in these ‘best cases’ it is unlikely to be valid in other cases. Focusing on best cases

may also help to identify the most significant challenges to the institutional

complementarity theory – factors that limit the efficacy of transnational institutions in

these cases are likely to be significant obstacles in other cases. Of course since the cases

are not representative our findings should be viewed as suggestive of directions for

further research rather than as bases for conclusive generalizations.

The claim that transnational anti-corruption law complements local institutions is

most compelling in relatively poor countries in which corruption is a sufficiently serious

problem that it is plausible that local anti-corruption institutions would be overmatched

without foreign assistance. Concerns that transnational anti-corruption law represents a

form of legal imperialism are most muted in countries which have formally endorsed key

aspects of transnational anti-corruption law and, perhaps, in which local institutions are

not so weak as to be irrelevant.

Only a small number of countries satisfy these criteria. Until the adoption of

UNCAC, which had 169 parties as of December 2013, the most significant international

legal instruments were the OECD Convention and the FATF, which focus on

criminalization of foreign bribery and money laundering respectively. Only five

countries that are not high-income countries are members of both the OECD Convention

and the FATF: Argentina, Brazil, Mexico, South Africa and Turkey. All are currently

classified by the OECD as upper-middle income countries.

We have chosen to focus on Argentina and Brazil on account of the authors’

personal expertise. They satisfy our other selection criteria because local anti-corruption

institutions in both countries have historically been regarded as weak. A major concern

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is that local institutions are too intimidated to challenge members of the political elite.

Concerns have also been raised that local authorities are hampered by antiquated criminal

procedures that bar cooperation between different branches of government, the absence

of provisions for corporate criminal liability, and absence of the expertise required to

conduct sophisticated forensic investigations. These weaknesses are presumed to allow

public officials to engage in corruption without being held legally accountable (Tulchin

and Espach 2000; Helmke and Levitsky 2006; Power and Taylor 2011).

The study focuses on cases that involve the interaction between local anti-

corruption law in Argentina and Brazil, and foreign law enforcement agencies located in

the US, Germany and Switzerland, as well as the international investment regime and the

World Bank’s sanctions process. Consistent with our focus on best cases, each of the

cases selected was widely viewed as one in which foreign institutions worked intensely

and effectively to enable either transnational prosecution or transnational asset recovery

in response to incidents of corruption that were also addressed by local legal institutions.3

In Brazil, all of the cases that fit our criteria involved transnational asset recovery.

3 The TRT Case was listed among nine “prominent episodes of alleged federal political corruption, 1988-

2008” by Power and Taylor (2011, 2-3) and referred to as “one of the biggest corruption and money

laundering scandals in Brazilian history” (Soares 2013, 305). It was the only case that involved (i) a wide

range of local legal institutions (i.e. civil and criminal proceedings as well as a parliamentary commission

and an audit by the supreme audit institution); (ii) enforcement of several decisions and (iii) participation of

both public and private foreign actors. We also considered some of the legal proceedings arising from

Paulo Maluf’s political career as candidates for our Brazilian case study. It proved difficult to use those

events to create a well-defined case study because Mr. Maluf is involved in dozens of proceedings related

to different public works developed during his terms as Governor and Mayor of São Paulo.

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Accordingly, in Argentina, we went out of our way to choose a prominent case that

involved transnational prosecution for bribery.4 The two cases are designed to

complement one another: they allow us to examine the most significant components of

transnational anti-corruption law while demonstrating that not every case involves all of

those components.

Although the particular cases examined are not intended to be representative, they

do involve forms of corruption that were fairly typical for their respective countries

(Manzetti 1999; Speck 2002). This feature of the case studies maximizes the relevance

of our findings to policymakers: from a policy perspective it seems particularly important

to evaluate the potential performance of transnational institutions in relation to relatively

common forms of corruption.

4 The ID cards case was extremely prominent in Argentina because bribes were paid to top officials of three

administrations with different political leanings at several points in time. The case fits our best case

criterion because the legal responses were remarkably vigorous. The misconduct triggered multiple

proceedings in Argentina involving the national anticorruption agency, federal criminal prosecutors,

criminal courts and civil courts. The contract awarded to Siemens is the only contract unilaterally

terminated by the Government after a (allegedly) highly corrupt 10-year long privatization process alleged

(Macetti, 1999). It was also the only case –out of 40 cases – in which the team of attorneys representing

Argentina before the ICSID requested annulment based on allegations of bribery. The broader

multijurisdictional enforcement action against Siemens and its executives was a landmark case, mainly

because the penalties imposed on Siemens were the largest in the history of the transnational bribery

regime. Among other cases we considered for our case study, the set of proceeedings concerning payments

made by IBM to obtain several contracts in Argentina during the 1990s was a leading candidate. Those

proceedings did not involve as wide a range of legal institutions as the ID cards case, especially outside of

Argentina, and so were less suitable for our purposes.

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The data for the case studies were collected using three main methods. First, we

reviewed all of the publicly available documents produced in connection with the various

legal proceedings that emerged from the transactions of interest. Files from criminal,

civil, administrative and foreign courts were scrutinized. Due to national secrecy rules,

some of the files could only be accessed indirectly. Second, we reviewed all of the major

media reports from La Nacion, Clarin and Pagina 12 (in Argentina) and Folha de São

Paulo and Veja Magazine (in Brazil). Third, we conducted a total of 25 interviews with

law enforcement officials, private attorneys and representatives of international

organizations: 6 in Argentina, 9 in Brazil, 1 in Paris and 9 in Washington DC.5

3. ID cards for Argentina

On November 4th, 2009, the President of Argentina, Cristina Fernández de

Kirchner, inaugurated the state-owned plant that would produce the new state-of-the-art

digital national Identity Card. Citizens would be able to have their ID cards delivered to

their home address for less than 4 dollars (AR$ 15). In her speech, President Kirchner

proudly recalled that almost 15 years earlier former President Menem had privatized the

same service, but then the cost was to have been 30 dollars per card, that is to say: almost

8 times the cost of the cards offered by the Kirchner administration. President Kirchner

did not make any further explicit reference to the billion dollar contract the Menem

administration signed in 1998 with Siemens Information Technology Services SA (SITS

SA), a wholly owned subsidiary of Siemens AG, the German corporation. It was not

5 To preserve anonymity the interviewees are referred to below by numbers.

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necessary: every voter associated the ID card project with one of the most significant

corruption scandals in Argentina’s recent history.

3.1 A contract that never materialized

In August 1994, the Argentine Government put out a call for tenders for the

digital national identity cards, 50 border posts and the national electoral register. The

Decree was issued 15 days after a bomb killed 86 people in a Jewish community center,

under public pressure to improve the state’s capacity to process intelligence information

and control the borders of the country.

The process was far from being transparent. Many sources suggested that the

three consortia that finally presented their bids used both legal and illegal means to

influence the process. When finally published, however, it became clear that the call for

tenders had been drafted to favor a local consortium backed by Mr. Alfredo Yabrán, a

tycoon alleged to have ties to organized crime and with monopolistic interests in several

industries, including private couriers, duty-free shops, bonded warehouses, customs

services, personal security and business intelligence6 (Bonasso 1999; Caviglia and Sanz,

1998; Cavallo 1997). From an anti-corruption perspective, the bidding process raised

several red flags: many not-necessarily-connected services put out to tender at once; bid

conditions that were excessively costly to obtain (US$ 80,000); and, specifications with

6 The fact that the bid conditions were not made public until two years after they were drafted was due to

the fierce opposition of Domingo Cavallo, then Minister of Finance and main architect of Argentina’s

market-oriented economic reforms. Cavallo opposed the project because it was tailored to favor Mr.

Yabrán. It was only after Cavallo’s resignation –precisely 2 weeks after— that the bid conditions were

published in the official gazette.

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which only one competitor would be able to comply –e.g., through his monopoly of

private couriers, Yabrán’s group was the only bidder in the position to guarantee the

required territorial distribution of the IDs.

Right after the bid specifications were released, representatives of a center-left

Peronist faction (Menem’s party) tried to stop the process by initiating a civil action—

grounded in the idea that the bid specifications were tailored to Yabrán’s group—and a

criminal investigation. Both cases were handled by judges beholden to Menem and, after

some routine paperwork, both were closed and the decisions upheld by their respective

Chambers of Appeals. As one of the complainants stated: “Our claims were rejected, but

we made enough political noise to delay the process for a while” (Liascovich 2004: 15).

The delay was not futile. In January 1997, just as the “independent commission”

in charge of examining the offers was about to announce that the consortium backed by

Yabrán was the winner, Yabrán was accused of ordering the murder of a photojournalist

from a weekly political magazine. Soon after Yabrán was indicted as instigator of the

crime. A new “independent” evaluating commission was then appointed which

contradicted its predecessors and agreed that Siemens’ offer was the most suitable.

In other words, Siemens won by accident. The Government, however, forced

Siemens to compensate the “losing” consortium. Before awarding the contract to

Siemens, the Government convened secret meetings where Siemens agreed to 1) replace

its mail supplier with the newly privatized mail service, 63% of whose shares were

owned by an affiliate of one of the losing consortium members; and 2) buy another

company from the losing consortium for around US$ 50 million, a disproportionate price

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according to several sources (Noticias Magazine, 01/09/1999; Liascovich 2004: 35;

Alconada Mon: 53). In exchange, the losing consortium agreed not to challenge the

award.

Siemens apparently paid bribes not only to secure the contract but also to settle

any differences arising in its interpretation (SEC 2008: 21; DOJ 2008: 6-7; Alconada

Mon 2011). Siemens used a consulting group controlled by Carlos Sergi, a director of the

Siemens Argentine subsidiary, as a conduit for these payments.

A new criminal complaint, based on the high price of the ID cards was filed when

the contract was awarded. However, this complaint suffered the same fate as the previous

two.

Before Siemens started to produce the IDs, Menem was voted out of office and a

coalition headed by President Fernando de la Rúa assumed office on December 1999,

promising nationwide anticorruption reform. In spite of strong political pressure exerted

by Siemens7 the new administration terminated the contract. A few months later,

cornered by a deep economic crisis, de la Rúa was forced to resign. Siemens renewed its

7 Siemens’ lobbying to keep the contract alive included explicit pressure from German Chancellor Gerhard

Schröder, who not only conditioned the German support on the approval of an IMF loan to Argentina on

the continuation of the contract but also insinuated that all German investments in the country were at risk

if Argentina could not guarantee Siemens’ property rights. (Liascovich, 2004: 65; La Nación, 10/13/2002).

In parallel, Siemens engaged formal and informal lobbyists to convince key players through additional

improper payments (DOJ, 2008:11).

21

efforts to re-launch the contract with the transitional administration that replaced De la

Rua,8 but those efforts were not successful either (Clarín 05/18/2002).

3.2 ICSID arbitration

Siemens’ next step was to file a claim with the International Centre for the

Settlement of Investment Disputes (“ICSID”) under the German-Argentine bilateral

treaty. The company claimed US$ 602 million in damages stemming from the loss of its

investment in the ID Project. Around 10% of the claim corresponded to “unproductive

expenses”, including the expenses of lobbyists hired to re-launch the contract at various

stages and, presumably, the bribes channeled through Mr. Sergi. The lawyers for the

Argentine government argued that the ICSID tribunal’s jurisdiction would be impaired if

there was evidence the contract had been obtained through corrupt means. In order to

pursue such evidence, they coordinated efforts with the National Anticorruption Office

(NAO) –an office within the Executive created by the Government of President de la

Rúa— to request the re-opening of the criminal complaint that was sent to the archives in

1999.

In the meantime, Siemens was facing strong pressure from Mr. Sergi. In

preparation for its complaint before the ICSID Siemens terminated all contracts with the

phony companies controlled by Sergi that had been used to channel the improper

payments. Sergi threatened Siemens that he would pass information about the bribes to

8 In February 2002, Heinrich Von Pierer, then CEO of Siemens AG and Chancellor Gerhard Schröder

threatened transitional President Duhalde with demanding compensation in the amount of around US$600

million before an arbitral investment panel (Clarín, 02/16/2002). Apparently, the threat coincided with

more bribery (SEC; 2008: 21).

22

the Argentine Government, an action that would jeopardize Siemens’ chances before

ICSID. Sergi demanded US$ 22 million in exchange for his silence. However, the fact

that Siemens listed its securities on the New York Stock Exchange in March 2001 and

thereby became subject to the United States’ FCPA made it complicated for Siemens to

pay off Sergi. The Siemens legal department was of the view that the company could

only pay Sergi if it was “legally required” to do so. Based on the annulment of the

contracts with the phony companies and on the payments he had received before, Sergi

opened a commercial arbitration claim before the Zurich Chamber of Commerce. A panel

awarded Sergi US$ 8.8 million and Siemens, satisfied with the “legal support”, honored

the award (Alconada, 172).

With Sergi´s silence ensured, the lawyers for the Argentine Government were

unable to show strong evidence of corruption and the ICSID panel decided to assume

jurisdiction. In February 2007, the panel awarded Siemens US$ 218 million plus 75% of

its legal expenses and an indemnity for all claims that Siemens’ sub-contractors might

have regarding the contract. In July 2007 Argentina launched proceedings to set aside

the award, first by applying for an annulment and later by requesting “revision” of the

award.9

3.3 The foreign investigations

While the ICSID arbitration was under way in Washington, Michel

Kutschenreuter, a former senior Siemens Executive, testified before the Munich

Prosecutor´s Office that he was aware that bribes had been paid in 1999 in order to obtain

9 See information about “procedural details” of Siemens A.G. v. Argentine Republic (ICSID Case No.

ARB/02/8) posted on www.icsid.worldbank.org.

23

the ID Cards Project in Argentina. Mr. Kutschenreuter’s testimony followed his arrest in

October 2006 as part of a criminal investigation by the Munich Public Prosecutor’s office

into allegations that Siemens routinely paid bribes to obtain public contracts in countries

around the world. The information he provided was eventually supplemented by the

products of an extensive internal investigation initiated by the audit committee of

Siemens and conducted by a private law firm. The internal investigation report –for

which Siemens has allegedly paid more than US$ 200 million- was shared with German

and US law enforcement agencies but has not been made public.

The German and US investigations resulted in record-breaking liability for

Siemens. In October 2007 Siemens agreed to a settlement with the Munich Public

Prosecutor’s Office which involved payment of a €1 million fine and €200 million in

disgorgement of profits. That settlement related exclusively to the activities of Siemens’

telecommunications group. On December 15, 2008 Siemens AG agreed to pay the

Munich Public Prosecutor’s Office another €395 million, including a €250,000 corporate

fine and €394.75 million in disgorgement of profits, to settle charges stemming from

parts of the company other than its telecommunications group. On the same date,

Siemens and three of its subsidiaries based in Argentina, Venezuela and Bangladesh

pleaded guilty to violations of both US and German law relating to foreign corrupt

practices. As part of the plea agreement Siemens AG agreed to pay a fine of US$ 448.5

million and its subsidiaries in Argentina, Bangladesh and Venezuela each agreed to pay

US$ 500,000 fines. Siemens AG separately agreed to pay US$ 350 million to the US

Securities and Exchange Commission (SEC) in disgorgement of profits. At the time the

24

combined US penalties represented the highest monetary sanctions ever imposed in an

FCPA case.

In addition to sanctions imposed by organs of the German and US governments,

Siemens AG was investigated and sanctioned by the Integrity Department of the World

Bank. The settlement with the World Bank included a commitment by Siemens to pay

$100 million over the next 15 years to support anti-corruption programs, a four-year

debarment for Siemens’ Russian subsidiary and a voluntary two-year exclusion from

bidding on Bank-financed projects for Siemens AG and all of its consolidated

subsidiaries and affiliates. As part of the settlement, Siemens also agreed to co-operate

with the World Bank in changing industry practices and to engage in “collective action to

fight fraud and corruption.”10

3.4 Repercussions in Argentina: much ado about (almost) nothing

The information generated by the investigations in Germany and the US gave

fresh impetus to the Argentine government’s efforts to set aside the ICSID award and to

the criminal proceedings in Argentina. The lawyers for the Government as well as the

criminal investigative magistrate requested assistance from foreign authorities. They were

not able to obtain information from official sources in Germany or in the USA until the

plea agreement with Siemens was signed. Requests for assistance through civil, criminal

and diplomatic channels all failed.

10 Information on the settlement is available at:

http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22234573~pagePK:34370~piPK:

34424~theSitePK:4607,00.html

25

In the case of the ICSID arbitration, the consequences of the initial lack of

cooperation were immaterial. Having failed to secure cooperation from foreign officials,

Argentina was compelled to base its application for annulment on news reports.

However, its submissions in the revision proceeding were based on admissions by

Siemens released by the US authorities. None of these issues were ever adjudicated by

the ICSID panel because on August 12, 2009 Siemens discontinued its initial proceeding

against Argentina, thereby waiving its entitlement to the US$ 218 million award.11

Siemens also agreed to pay the claims of its sub-contractors on the project. The lawyers

for the Government were fully satisfied with this outcome.

In the criminal case, the investigative magistrate requested copies of the Siemens

internal investigation from both foreign authorities and the company. When all replied

that the information was privileged, in February 2009 the magistrate ordered a raid on all

Siemens offices located in the city of Buenos Aires, justifying the measure on the

grounds of the “obvious lack of cooperation” from the company (Criminal File, page

3369). The disruption caused by the raids and the ensuing media coverage seemed to

convince Siemens of the need to change the magistrate’s poor opinion of the company.

Shortly afterwards Siemens produced a 400-page report which included a list of all

financial transactions and accounting documentation which –according to Siemens– were

the data that allowed the USDOJ to affirm: “From in or about 1997 to January 2007,

Siemens Argentina paid or caused to be paid at least $ 15,725,000 directly to entities

controlled by members of the Argentine Government, at least $ 35,150,000 directly to the

Argentine Consulting Group and at least $ 54,908,000 to other entities” (DOJ, 2008: 7).

11 Argentina simultaneously discontinued its annulment and revision proceedings.

26

From then on the investigation concentrated on getting corporate and financial

evidence from various financial centers. In May 2009, mutual legal assistance requests

were sent to the USA, Switzerland, the United Arab Emirates, the British Virgin Islands,

Guernsey, the Bahamas, the Cayman Islands, Panama, Costa Rica, Uruguay and

Germany. The magistrate also travelled to Germany in June 2009. In January 2010,

answers began to come in from Germany, Panamá, the USA, the Bahamas, Guernsey, the

Cayman Islands, Uruguay and Switzerland.

In March 2011, after having analyzed the information collected internationally,

the investigative magistrate indicted Mr. Carlos Sergi, the engineer of the bribes, and

called 22 individuals to present their defenses. The press questioned the fact that none of

the defendants were public officials. The investigative magistrate explained that he would

call the former public officials once he had heard from all the private parties involved. As

some of the defendants were living in Germany, taking the 22 depositions took him more

than two years. In December 2013, 17 defendants were charged with paying bribes: 9

former executives of Siemens, 3 intermediaries working for Mr. Sergi, and 5 individuals

working for the losing consortium, (on the grounds that, by agreeing not to challenge the

award, they contributed to the bribery scheme). Remarkably, no one was charged with

receiving the bribes. . In spite of the fact that the USDOJ and the German authorities

indentified several recipients of the bribes, the Argentine magistrate ordered further

investigation to determine the final recipients of the illict payments. Some interviewees

questioned the impartiality of the magistrate. They suggested that he “owed” his

appointment to Carlos Corach, former Ministry of Interior of the Memen administration

and one of the most prominent defendants in the case.

27

3.5 Media coverage

Some of our interviewees argue that the pro-active steps taken in 2009 – searches

of Siemens’ premises, forensic analysis, mutual legal assistance requests to more than 15

countries, missions to Germany to hear witnesses and so forth –were forced by the flurry

of information generated by other jurisdictions and reported in the local press.

The media has played an important role in exposing corruption in Argentina. This

has been especially true since many of the institutions charged with oversight were

captured during the Menem administration (Vervitsky, 1993). The ID cards case was not

an exception.

The 3 national newspapers averaged 42 stories about the case every year from

1997 to 2012, with a peak of 99 stories in 2008. In one newspaper, La Nación, the

number of stories appearing in the first pages of the political section tripled when

milestones in the case were reached: when the contract was awarded in 1998; when the

contract was terminated in 2001; when Siemens deployed its political power to re-launch

it in 2002; and, when Siemens filed the ICSID complaint in 2005. Most of the coverage

was translations of news appearing in foreign media followed by a local analysis focused

on identifying the public officials mentioned (only by their positions) in the foreign

proceedings and comparing the performance of the American and German institutions

with that of the Argentine criminal justice system. It did not go unnoticed that the

foreign institutions were able to close the case in less than two years while in more than

fifteen years the Argentine institutions were not even able to pass the first step of the

criminal proceedings.

28

4. The TRT Case

1992 was a remarkable year in Brazil’s history. In that year the establishment of a

Parliamentary Investigation Commission (CPI) resulted in the impeachment of Fernando

Collor de Mello, the country’s first elected President in three decades. Several other CPIs

followed, some of which resulted in expulsion, resignation or removal of public officials,

and all of which were accompanied by extensive media coverage (Power and Taylor

2011: 18; Pedone 2002). In O jornalismo dos anos 90, Nassif (2003: 3) describes the

period as “the period of denunciation.”

Analyses of media coverage from the period suggest that in the early 1990s public

works was the sector most vulnerable to corruption and embezzlement of public money

(Nahat, 1991: 19; Abramo 2002: 105; Arantes 2011: 185). And that is exactly where our

story begins, with an edict soliciting bids for construction of a new headquarters for

tribunals of first instance of the São Paulo Labor Regional Court of the Second Region

(TRT-SP).

Twenty-nine companies obtained copies of the edict, but only three presented

formal bids. One of them was “Incal Indústria e Comércio de Alumínio Ltda.” On

March 21, 1992 the bidding commission announced that the winner was a fourth

company “Incal Incorporações S.A” and the contract was awarded to that company.12

Incal Incorporações S.A. was later described as the result of an association between the

12 TCU’s decision No. 231/1996 (p. 03).

29

Monteiro de Barros Group and Incal Alumínios.13 Incorporated on February 21, 1992, the

company’s owners, directly or indirectly, were Fabio Monteiro de Barros Filho, João

Julio Cesar Valentini, and Luiz Estevão de Oliveira Neto.14

This innocuous transaction led to one of the most notorious corruption scandals in

recent Brazilian history. Between April, 1992, when the Treasury effected the first

payment under the contract, and July 1998, Incal Incorporações received 80 bank

transfers totaling R$ 226 million. According to one report, only R$ 63 million was used

for the construction of the building, leaving R$ 169 million of public funds unaccounted

for.15 It would later come to light that the engineer appointed by TRT to monitor the

works and verify that progress justified the payments made by TRT had received

payments from the Monteiro de Barros Group, in 1993 and 1994, totaling US$ 42,000

(CPI Report 2000: 71).

The TRT-SP case led to legal proceedings that were remarkable in both their

number and variety. Within Brazil there were administrative, civil and criminal

proceedings as well as a CPI and an impeachment proceeding in the Senate.16

13 One of the principals later claimed that the association of the Grupo Monteiro de Barros with Incal

Alumínios to establish Incal Incorporações was anticipated before the result of the bid was determined (CPI

2000, 63).

14 Proceeding No. 2000.61.81.001198-1, addendum to the arraignment (p. 04) and judgment (p. 37-38).

15 Report of the Court of Appeals’ decision 591/2000 concerning Rendering of Accounts by TRT-SP for

fiscal year 1995 (TC-700.115/1996).

16 For a complete list of the 176 proceedings and appeals related to Nicolau dos Santos Neto, see Machado

(2013: attachment 2).

30

Meanwhile, outside the country there were path-breaking asset recovery proceedings in

Switzerland and the United States.

4.1 The Federal Accounting Tribunal: Round One

Problems with the TRT-SP contract were detected almost immediately. Shortly

after the contract was executed, between October 26 and November 13, 1992, employees

based in the São Paulo branch of the Federal Accounting Tribunal (Tribunal de Contas

da União, TCU)17 conducted a “regular sectoral inspection” of the TRT-SP. The

inspection team’s report listed 17 irregularities in the bidding process and the contract

between TRT and Incal. The team’s report recommended a number of corrective actions

including: the “prompt interruption of payments to Incal Incorporações S.A.”,

invalidation of the contract, and a refund of certain sums improperly paid prior to the

signature of the contract (TCU, Proceeding TC-700.731/92-0, Decision 231/96). The

inspection team’s report was reviewed by the full TCU tribunal in May, 1996 which

closed the case without ordering any corrective action. The Tribunal decided to

“preliminarily accept the procedures adopted up to this time by the TRT-SP, taking into

consideration the final stage of the works,” and determined that the President of the TRT-

SP should “adopt urgent measures to immediately transfer the construction site to TRT’s

name (Law No. 8666/93)” (TCU, Proceeding TC-700.731/92-0, Decision 231/96). There

does not appear to have been any appeal against this decision.

17 The Federal Accounting Tribunal (TCU) is responsible for overseeing the accounts of the federal

government and also for deciding if any irregularities have been committed by companies, administrators

or employees responsible for public goods. For a complete description of TCU’s activity and performance

during the last decade see Speck (2011: 127-161)

31

4.2 The Public Civil Action

In May, 1997 the Federal Public Prosecutor (Ministério Público Federal) (MPF)

launched a “Public Civil Investigation” of the TRT-SP case. The investigation was first

proposed by the Federal Deputy Giovanni Queiroz, a then-member of the National

Congress’s Budget Commission.18 His statement to the MPF expressed concern regarding

the project’s sluggish pace and the fact that the TCU seemed to have turned a blind eye to

the alleged contractual irregularities (CPI 2000, 73).

In July, 1998, the MPF secured an injunction preventing the National Treasury

from continuing to transfer funds to Incal.19 Subsequently, on August 26, 1998, the MPF

filed a public civil action20 before the Federal Court.21 The commencement of the civil

18 Note by the Federal Senate’s Permanent Commission concerning the 6th Extraordinary Meeting of

08/10/2000 of the CCJ Commission - Judiciary Sub-Commission, p. 04.

19 Injunction Relief n. 93.0032242, 12a Federal Criminal Circuit Court. The injunction was issued in the

course of a criminal proceeding against Nicolau dos Santos Neto, Luiz Estevão, Fábio de Barros, José

Eduardo Ferraz and the companies involved in the site’s construction.

20 The public civil action was created in 1985 (Federal Statute nº 7.347, of 24/07/85) authorizing the Public

Prosecutors, some public bodies and civil associations to begin investigations focused on accountability

and reparation for damages in cases which involve the protection of collective rights, such as the

environment, consumers’ rights and economic rights. When the law of administrative improbity came into

force, the public civil action also started being used to investigate civil responsibility in corruption cases.

21 Public Civil Action n. n. 98.0036590-7. The lawsuit was filed against Nicolau dos Santos Neto, Luiz

Estevão, Fábio de Barros, José Eduardo Ferraz, Delvio Buffulin, Antonio Carlos Gama, Incal

Incorporações S/A, Monteiro de Barros Investimentos S/A, Fabio Monteiro de Barros Filho, José Eduardo

Ferraz, Construtora Ikal Ltda., Incal Ind. and Com. de Alumínio Ltda. The suit was filed before the 12th

Federal Criminal Court in light of the motion for injunctive relief.

32

action led to the freezing of several Brazilian bank accounts. The bank accounts remain

frozen to this day but the civil action has not yet been resolved; at least 62 appeals have

been filed in the thirteen years since the first judgment was handed down in 2001. These

kinds of delays are not out of the ordinary; our interviews suggest that public civil

actions—especially those involving allegations of administrative misconduct—regularly

languish in the Federal Courts.22

After more than ten years of proceedings, on October 26, 2011, judgments were

handed down in both of the public civil actions23 holding the defendants24 responsible

for: material and moral damages caused to the State, “to be arbitrated at the sentencing

phase;”25 a civil fine equivalent to three times the monetary gain that the defendants

accrued from the corrupt acts; and, returning to the State any increase in the value of

assets gained unlawfully. The court also revoked the defendants’ right to enter into

government contracts, and suspended certain political rights for ten years. Furthermore,

the court confirmed an injunction maintaining the unavailability of defendants’ assets and

blocking their bank accounts.

22 See also Taylor (2011: 170) (“the system is delay ridden, formalistic; and subject to constant appeal”).

23 It seems that a consolidated trial had taken place for Bill of Review no. 2000.03.00.033614, of TRF3

(Fedral Court of Appeals), and ACPS 2000.61.00.012554-5 and 98.0036590-7.

24 The defendants Jail Machado Silveira, partner-manager of Construtora e Incorporadora CIM, and Délvio

Buffulin, President of the Regional Labor Court, were acquitted due to lack of evidence. ACP Sentence n.

98.0036590-7, DJ 26.10.11.

25 ACP Sentence n. 2000.61.00.012554-5.

33

4.3 The CPI

On March 25, 1999, the Federal Senate launched a Parliamentary Investigation

Commission (Comissão Parlamentar de Inquérito, CPI) to investigate allegations

relating to the Brazilian justice system.26 The Federal Senate had received more than

four thousand complaints relating to the justice system but the CPI selected just nine

cases for in-depth investigation. One of those cases was the TRT-SP case.

The CPI’s investigation relied upon evidence gathered by compelling disclosure

of the bank records of people and companies involved in the case as well as fifteen

individual depositions. As we have already mentioned, the bank records revealed

payments to the engineer appointed by TRT to monitor the works. The investigation also

revealed transfers of funds totaling US$ 6 million to Swiss bank accounts owned by

Nicolau dos Santos Neto. Funds were transferred to a shell company and then used to

purchase a deluxe apartment in Miami. Other funds were transferred to accounts in banks

located in the Cayman Islands, the Bahamas and Panama.27

In November 1999 the CPI issued a 360-page report detailing these irregularities.

The CPI report also laid out 21 recommendations, including mandates to: (i) “institute

external control of the Judiciary”; (ii) “speed up the approval of the treaty on Mutual

Legal Assistance in Criminal Matters, entered with the United States of America in

October, 1997, and the OECD Convention on Combating Public Bribery of Foreign

Public Officials, concluded in Paris in December, 1997”; (iii) “Re-examine the 26 The Brazilian Federal Constitution has provided for CPIs since 1934. The current Constitution, of 1988,

for the first time grants to the CPIs the same investigative powers granted to the judicial authorities

(Federal Constitution, art. 58, 3rd).

27 CPI Report 2000: 97 and 79; interviews 2, 3 and 9.

34

constitutional law regarding letters rogatory...in order to expedite cooperation between

Brazil and other countries under existing international agreements”; (iv) “require the

Senate Foreign Affairs Commission to examine how to more effectively implement

bilateral and multilateral agreements of international judicial cooperation to which Brazil

is already a party” (CPI Report 2000, 615 and 616).

4.4 Media coverage

The CPI’s investigation and report sparked investigations and proceedings by a

variety of other institutions, both inside and outside of Brazil.28 The most immediate

impact was seen in media coverage of the case. Even after the commencement of the

Public Civil Actions the TRT case attracted little attention from the media. That

changed, however, in April 21, 1999 when Folha de São Paulo began to cover the CPI’s

hearings regarding the TRT Case. On the first day of coverage there was a front page

story based on the breach of Santos’ bank secrecy and new stories were published

virtually every day that week. The watershed came on April 28, 1999 when the weekly

magazine Veja published a three page exposé of Nicolau dos Santos Neto’s personal

finances.29 Ironically, Veja did not regard the TRT case as the biggest scandal of the

28 Soares (2013, 312) reports that Brazilian media coverage led to Nicolau dos Santos Neto being identified

as a political exposed person (PEP) and “prompted Santander Bank to notify the Geneva Attorney General

of suspicious transactions”.

29 The main source of information for the report was Santos’s son-in-law, Marco Aurélio Gil de Oliveira,

who was interviewed by Veja a few days after his hearing at the CPI. According to Marco Aurélio, when

he threatened to publicize Nicolau’s wealth and spending habits Nicolau retorted, “you may denounce me,

but nothing is going to happen to me. I am a respected judge and have powerful friends.” Veja, April 28,

1999 (Issue No. 1595), p. 46.

35

week. The cover story of that issue, accompanied by an eight page article, was about the

overseas accounts of a former president of the Central Bank.30

4.5 The Federal Accounting Tribunal: Round Two

In May 1999 the TCU reopened its audit of the TRT case (decision 45/99), citing

a 1998 letter from the Chief Federal Prosecutor of the State of São Paulo on February,

1998 (TC-001.025/98-8). On July 11, 2001 the TCU decided that the accounts were

irregular and ordered the defendants to pay R$ 169,491,951.15. It also imposed fines of

R$ 10 million on Incal Incorporações, Grupo OK and Nicolau dos Santos Neto,

individually. The decision was affirmed on December 5, 2001.

On August 2012 the Federal Attorney General’s Office and Grupo OK signed an

agreement to partially resolve the proceedings launched by the Federal Attorney General.

The settlement was described as “the biggest recovery in Brazilian History” (AGU 2012).

Under the agreement Grupo Ok will pay roughly R$ 450 million: R$ 61 million in cash

and the rest in ninety-six installments of R$ 4 million. Grupo OK’s payment included a

fine of almost R$ 19 million in cash and an agreement to renounce its right to appeal that

fine. The Attorney General’s initial claim of R$ 169 million grew to R$ 991 over the

course of eleven years so the agreement actually provided for payment of less than half

the amount sought by the Attorney General. As of January 2013 proceedings aimed at

collecting the remaining R$ 542 million were still under way.

30 “Scandal’s X-ray: Chico Lopes (Central Bank’s former president) has 1.6 million dollars, undeclared,

abroad”. ‘Veja’, April 28, 1999 (Issue No. 1595), front page.

36

4.6 The Senate

On December 8, 1999, just a few weeks after the CPI report was published,

several political parties submitted a statement to the Senate Ethics Committee repeating

the allegations against Senator Luiz Estevão set out in the report. According to the

statement, the illegal activities reported amounted to a breach of parliamentary decency

and not only made Estevão subject to expulsion but also disqualified him from holding

public office. On June 28, 2000, the Senate’s Plenary Assembly approved Luiz Estevão’s

expulsion.”31

4.7 Criminal proceedings

In April, 2000, MPF initiated two criminal proceedings related to the TRT case.

The first proceeding focused on charges of corruption; the second proceeding charged

Nicolau dos Santos Neto with money laundering. Preventive detention was ordered for

both Nicolau dos Santos Neto, Fábio and José Eduardo but only Nicolau was actually

detained.

The decision at first instance was handed down in June, 2002. Nicolau was

sentenced to 8 years’ imprisonment for money laundering and influence peddling. All of

the other defendants were acquitted. The MPF appealed against the decision and, in 2006,

the Federal Regional Appeals Court of the 3rd Region (Tribunal Regional Federal da 3ª

Região, TRF-3) overturned the rulings in the corruption case. The Appeals Court

31 Published on the D.O.U., resolution No. 51/2000 of June 29, decreeing the revocation of Luiz Estevão’s

mandate.

37

convicted all defendants and sentenced them to between 26 and 31 years’ imprisonment.

The Appeals Court also imposed fines ranging from R$ 900 thousand to R$ 3 million.

The defendants appealed to the Superior Court of Justice (Superior Tribunal de

Justiça, STJ). Three of the defendants - Luiz Estevão, Fábio de Barros and José Eduardo

Ferraz – were allowed to remain free pending the outcome of the appeal. They were

detained for a total of only a few days through the course of the proceedings. Nicolau dos

Santos Neto, however, was denied the right to remain at liberty, presumably because he

had absconded. On account of his health Nicolau was ordered to remain confined to his

home. Curiously, this new sentence attracted little media coverage: it was mentioned in

only two of the eight stories published during the year.

4.8 Proceedings in Switzerland

The news reports published in April, 1999 caught the attention of the Swiss

authorities. Geneva’s General Public Prosecutor initiated preliminary investigations of

Nicolau dos Santos Neto for money laundering (P/5132/99) and, on May 4, 1999,

breached secrecy of banking documents and froze funds totaling just over US$6.8 million

in two accounts at Banco Santander (CPI Report 2000: 96).32

Two attempts to have the funds repatriated to Brazil were made. The first attempt

was by the first District Court of the Federal Tribunal in São Paulo. Early in 2000 the

Court sent a letter rogatory to Geneva, explaining that Nicolau dos Santos Neto was

under investigation for corruption and embezzlement of public money and requesting

seizure and repatriation of all assets frozen in Switzerland. The Swiss judge granted the

32 Federal Penal Court. RR 2007.131, p.02

38

motion. When Nicolau appealed the chambre d’accusation upheld the freeze but held that

a final decision from the Brazilian judiciary would be required for the assets to be

forfeited and repatriated. In addition, the “chambre d’accusation” called attention to the

existence of a Swiss proceeding - the above-mentioned P/5132/99 - which might also

allow the seizure assets in the Swiss territory.33 Therefore, if Brazilian authorities did not

reach a final decision, the Swiss proceeding (P/5132/99) against Nicolau dos Santos Neto

for money laundering could guarantee repatriation. And that is what finally happened.

In 2004 a new attempt to repatriate the frozen assets was made, this time by

lawyers from Geneva retained by the Brazilian Federal Attorney General’s Office. Once

more the trial judge granted the motion. Again Nicolau appealed and the chambre

d’accusation allowed the appeal, this time on a procedural ground as well as because of

the absence of a final decision from Brazil.

In 2007 Nicolau requested that the trial court revoke the decision freezing his

accounts. The judge denied the motion and Nicolau appealed, pointing to the lapse of

over 8 years and the lack of connection between the bank accounts in Switzerland and the

facts ascertained in Brazil. The appeal was dismissed on November 27, 200734.

In 2009, the Swiss proceeding (P/5132/99) was concluded with a decision of

forfeiture of the money frozen ten years before. The decision was confirmed by the

Tribunal de Police de Geneve in 2010 and became final in August 2012 with a decision

of the Tribunal Federal (Ribeiro 2013). Besides the repatriation of the funds, the Court

33 Federal Penal Court. RR 2007.131, p. 02

34 Federal Penal Court. RR 2007.131, p. 07

39

also ordered compensation (créance compensatrice) of US$ 2,153,628 in view of the

amount that was transferred to foreign institutions.35

4.9 Proceedings in Miami

In August, 2000, the Ministry of Justice set up a “task force” to organize the

efforts of the different bodies handling the case.

On September 1, 2000, lawyers from a Washington-based law firm hired by the

Brazilian State filed an action in the 11th judicial Circuit Court of Miami seeking transfer

to the Brazilian State of title to the apartment in Miami.36 In the previous month the

property had been showcased in the television show “Fantástico” by the journalist Caco

Barcelos and ever since it had become a symbol of the scandal. That same week,

Nicolau’s face appeared on the cover of Veja above the headline “Anatomy of a crime:

the story of the most outrageous coup in Brazilian history.” The ten-page story included

photos of the building, as well as of the apartment’s interior.37

Why did Brazil file a civil claim instead of requesting international cooperation

based on reciprocity? At the time the suit was filed in Miami the MLAT between Brazil

35 Decision available at http://jumpcgi.bger.ch/cgi-bin/JumpCGI?id=21.08.2012_6B_688/2011 (as of

January 28, 2013). According to the decision, roughly US$ 3.8 million was transferred abroad between

1994 and 1999.

36 The suit was filed against Nicolau dos Santos Neto and two Florida corporations. Materials filed in

connection with the claim are available from the website of the Circuit and County Courts, Miami, at the

address HTTP://www2.miami-dadeclerk.com/civil/search.aspx. The law firm had previously represented

Brazilian interests in the United States in debt negotiations with the IMF and in an earlier asset recovery

proceeding, the “Georgina de Freitas Case.”

37 ‘Veja’, August 02, 2000. Issue 1660. Printing of this issue: 1 257 444 copies.

40

and the United States, which had been signed in October, 1997, was still awaiting

approval by Brazil’s National Congress – recall that in December 1999 the CPI had

expressly recommended that approval of the agreement be expedited. The agreement

was not approved until December 18, 2000.

The Brazilian State was ultimately able to satisfy the Miami court that the

apartment had been acquired with funds arising from Nicolau’s account in Switzerland,

which, in turn, had received a number of transfers following the payments that the

Treasury made to Incal. In late August, 2001, the judge recognized a “constructive trust”

in favor of the Brazilian State.38 The apartment was auctioned and, in November 2002,

US$ 690,113.81 was deposited in the National Treasury’s account.

5. Discussion

5.1 Limitations of local anti-corruption institutions

At first glance, the outcomes of our two cases are consistent with the general

perception that local anti-corruption institutions in Argentina and Brazil are weak. Both

cases originated in corrupt acts that took place in the last decade of the 20th century, from

1992 to 1998 in the TRT case and from 1997 to 2007 in the case of the ID cards.

Although the allegations of corruption were widely reported within a few years of their

occurrence, more than ten years later legal proceedings are still under way. Moreover, the

38 The “constructive trust” is a common law remedy used to provide for the return of specific assets to their

legitimate owners. It is a flexible mechanism that allows a court to to transfer ownership of property if there

is evidence that its acquisition resulted in unjust enrichment. See, American Law Institute. Restatement

(Third) of Restitution & Unjust Enrichment § 55 (T.D. No. 6, 2008).

41

local authorities have only managed to deprive one person – Nicolau dos Santos Neto —

of his liberty for any meaningful amount of time and they have only managed to recover

a portion of the proceeds of the crimes.

The performance of the Brazilian institutions in the TRT case belies any general

claim that Latin American institutions are irredeemably compromised. The wrongdoing

was uncovered within a reasonably short period of time by a specialized government

agency (the Accounting Tribunal) and further civil, criminal and administrative

proceedings were commenced in due course. Most of those proceedings moved slowly

thereafter, but the creation of the CPI for the Judiciary and the way in which it dealt with

the TRT case are inconsistent with the idea that Brazilian institutions lacked either the

will or the capacity to investigate high-level corruption.39

The sheer number of proceedings in Brazil suggests that concerns about

defendants being burdened by multiple proceedings are not misplaced and that

transnational proceedings risk exacerbating that problem.

The TRT case also demonstrates some of the strengths and weaknesses of the

effectiveness of the Brazilian media as an anti-corruption institution. Particularly notable

is the role the media appears to have played in triggering the proceedings in Switzerland

and Miami. More generally, the amount of attention the Nicolau case received in the

media arguably weighs against any suggestion that Brazilian society at the time was

39 This is consistent with Power and Taylor’s conclusion (2011: 259) that “after analyzing other countries

experiences (...) Brazil not only is doing fairly well but may be on the cusp of a very positive equilibrium,

if it can push itself over the hump and improve the overall performance of its web of accountability”. For a

slightly earlier less optimistic conclusion, focusing specifically on the failure to imposing sanctions in

political corruption cases, see Taylor and Buranelli 2007.

42

somehow tolerant of grand corruption.40 This is all consistent with Nassif’s argument

that during the 1990s Brazilian journalists served “to submit the State to the control of the

public opinion and defend it from all sorts of corporatism” (Nassif 2003: 3; see also Porto

2011).

At the same time, the TRT case also illustrates the selective impact of media

attention. Much of the coverage of the case focused on the most scandalous pieces of the

story. Table 1 reveals that the period during which Nicolau was considered to be “on the

run from justice” - from early April, 2000 until the end of January, 200141 – accounts for

55% of all reports about the TRT case published in the course of over fifteen years, and

almost 67% of the cover stories. After that period, the case was no longer news: only 24

stories were published in 2002, for example, when the first criminal decision was handed

down. The media also paid much more attention to Nicolau than to other alleged

wrongdoers. Table 2 shows a large discrepancy between the number of media stories

published about Nicolau and the number of stories concerning the private actors involved

in the TRT case.42 The media was also fickle. For example, the initial sentences

imposed in the criminal case against Nicolau, Fábio and José Eduardo attracted

remarkably little media attention. They were made public late in the afternoon on Friday

June 26, 2002. Folha de São Paulo published a report on Monday and the next report did

not appear for another 15 days. Why the inattention? The finals of soccer’s World Cup

40 For more recent research on social acceptance of corruption in Brazil and its impact on voting see Power

and Taylor (2011: 10-11) and Reno (2011).

41 During this period a total of 302 stories were published, including 21 cover stories.

42 It was not possible to analyse media stories mentioning Senator “Luis Estevão” or “José Eduardo Ferraz”

in a similar fashion because each of these individuals was referred to by multiple names.

43

were held on Sunday June 28th and Brazil was playing for its fifth championship (it

won).43

[Table 1 about here.]

[Table 2 about here.]

The TRT case suggests that effective anti-corruption institutions need not mimic

institutions found in the United States. For instance, the absence of corporate criminal

liability does not appear to have been a major impediment to local anti-corruption efforts

in Brazil since public civil liability appears to serve as a functional equivalent.44

Similarly, the TRT-SP CPI played a unique role that does not directly parallel that of any

institution in another jurisdiction.45

The TRT case also highlights the importance of evaluating a country’s anti-

corruption institutions in a dynamic framework and taking into account those institutions’

ability to learn from experience and improve their performance over time. Since the TRT

case first came to light, several new anti-corruption institutions have been created in

Brazil, including the Federal General Inspection Office, the National Justice Council, the

Financial Intelligence Unit, the Department of Assets Recovery and International

43 Interview 3. Notwithstanding the soccer match, this feature of the TRT Case is consistent with Porto’s

concern about the growth of the journalism about investigations (as opposed to investigative journalism)

which he claims “reflects the system’s emphasis on the investigation phase and the corresponding neglect

of the stages of oversight and sanction” (2011: 119).

44 For more details see Machado 2013. On August 1st, 2013, Brazil passed law 12.846 enhancing corporate

liability for corruption offences.

45 Cf. Taylor (2011: 176): “[c]ongressional investigations, in particular, are often of little or no added

value”.

44

Cooperation of the Ministry of Justice, and specialized divisions in the Federal Attorney

General’s Office, and the Federal Public Prosecutor. The current set of anti-corruption

institutions is fundamentally different from the set that was in existence at the end of the

20th century.

Our study suggests that these kinds of changes in anti-corruption institutions can

be driven at least in part by pressures created by specific cases. The TRT case was

viewed by many players as a watershed for the Brazilian justice system. Although it is

impossible to draw direct causal connections, many of the above-noted changes in

Brazilian anti-corruption institutions were inspired in part by the TRT case.46 The case

also prompted considerable debate – as well as some innovation – around the legal

doctrines that govern anti-corruption proceedings, especially those that define the roles of

various branches of the state in responding to political corruption. Most notably, the TRT

case sparked a contest over whether to retain a rule that required proceedings against

former holders of public office to be dealt with by the superior courts if based on

allegations of crimes committed during the exercise of a public function. In August 1999

the Supreme Federal Court reversed a 1964 ruling that provided for this kind of special

venue. In 2002 a statute reversed the 1999 rule and restored and amplified the special

venue law. Within days of its coming into force the constitutionality of that statute was

challenged by magistrates and prosecutors’ associations. In 2005 a majority of the

Supreme Federal Court declared the statute unconstitutional but the issue is still under

debate. As Ferreira (2013) shows, these changes were the main cause of at least 25

46 The TRT Case was also key to the approval of a new rule governing the budget process (Lei de Diretrizes

Orçamentárias 2001) (Speck 2011: 147).

45

appeals - in both criminal proceedings and public civil actions - led to four changes of

jurisdiction - among federal and superior courts - and interrupted the proceedings for

almost four years.

It is more difficult to interpret the ID cards case as evidence of the strength of

Argentine legal institutions. The landscape of anticorruption institutions in Argentina

definitely changed during the period. Changes included: the creation of a National

Anticorruption Office when Menem was voted out of office; the creation of a centralized

financial intelligence unit soon after; the establishment of a constitutional rule reserving

the Presidency of the oversight bodies to the first minority in Congress; a new statute

considerably limiting the immunities of public officials when suspected of corruption; an

amendment to the criminal procedure establishing that the statute of limitations in cases

involving public officials would only start counting once the public official left office.

These changes were, however, prompted by scandals of corruption other than the ID

cards case.

The outcome of the ID cards case does, however, point to the important role that

political institutions and the media can play in combating corruption. Although the

Argentine courts and prosecutors were ineffective in responding to the corruption of the

Menem regime, the electorate, the De la Rúa administration and Congress were not.

Recall that in December 1999 Argentine voters threw Menem out of power and allowed

De la Rúa and Congress to cancel the Siemens contract. Political institutions can also

complement the media and legal institutions. When asked about the role of his office in

the Siemens case one of the lawyers with the National Anticorruption Office –created by

46

the De la Rua Administration- representing the Government in the criminal investigation

replied: “Our main goal is to keep the case alive, no matter how, and wait for a political

window of opportunity. (Interview 15)”

The ID cards case also illustrates the potential for bias in media coverage. As in

the TRT case, we found a bias in favor of coverage of public officials involved in the ID

cards case. Figure 1 shows that public officials involved in the case were mentioned an

average of 3.5 times more than Siemens executives. We also found evidence that the

pattern of media coverage was influenced by parties motivated by their own political or

economic interests rather than purely by a desire to combat corruption. In other words,

patterns of media coverage are explained by the dynamics of political and economic

competition rather than the actions of an independent investigative media (Balan, 2011).

After the contract was awarded to Siemens in 1998, the main source of information for

the press was the CEO of a local company that was part of the joint venture backed by

Yabrán. The company –which had been left out of the agreement reached between the

Government, Siemens and its former partners in the joint venture- first challenged the

award in an administrative court. The Government rejected the challenge on formal

grounds: only the joint venture (not the company alone) had legal standing to challenge

the award. Exposing the case appears to have been part of an apparently unsuccessful

campaign aimed at prodding the government to offer compensation.

[Figure 1 about here.]

47

5.2 The benefits of foreign assistance

On balance, the ID cards case supports the proposition that foreign institutions

offer valuable resources that compensate for the shortcomings of local anti-corruption

institutions.

Not all foreign institutions were helpful. The ICSID panel which initially upheld

Siemens’ complaint and the German government which lobbied on Siemens’ behalf

initially hindered rather than helped the De la Rúa administration in its efforts to annul

Siemens’ corruptly procured contract. At least for a while, the international investment

regime seemed oriented toward upholding the rights of actors who procured their

investment through corruption rather than the rights of states victimized of corruption.

Argentina derived greater benefits from the application of US and German anti-

bribery laws. The US and German authorities were able to draw upon political will,

investigative resources and leverage over Siemens that Argentine institutions could not

hope to match. They evidently were not intimidated by the prospect of confronting a

large multinational corporation or embarrassing high-ranking Argentine public officials.

The Munich Prosecutors’ Office, and perhaps to some extent the US law enforcement

officials, also took advantage of their relatively easy access to corporate records and

Siemens executives located in Germany and the US. That information allowed officials,

first in Germany and then in the US, to access information that revealed both the extent

of Siemens’ corrupt practices and the means by which they were carried out. Moreover,

the prosecutors and administrative agencies in both the US and Germany clearly also

took advantage of their ability to enforce penalties against the parent company of the

Siemens group as opposed to just a local subsidiary. Siemens could not afford to ignore

48

the threat of being sanctioned in the jurisdictions where such a large proportion of its

assets and business opportunities were located. Their leverage over Siemens allowed the

US and German officials to secure a level of cooperation from the firm that Argentine

institutions could only dream of obtaining on their own. Under Argentine criminal law

there are no incentives for companies to cooperate; there is neither corporate criminal

liability nor any of the associated institutions, such as mandatory compliance programs,

deferred prosecution agreements or non-prosecution agreements.

The fruits of this labor were not immediately shared with Argentine law

enforcement officials. For instance, the Argentine investigative magistrate asked US

authorities to send a copy of the report on the Siemens internal investigation. The US

authorities responded (consistently with applicable law) that such information was

privileged and protected by the work-product doctrine. The same information was

requested from Siemens Argentina and Siemens AG, with similar results. Moreover,

when the investigative magistrate attempted to get information from the German

authorities, he first phoned the Münich Prosecutor Officer, who—against recommended

international best practices—advised him to use the diplomatic channel. The investigative

magistrate followed the Münich Prosecutor’s advice; nevertheless, the German

authorities reported that the investigation in Munich was ongoing at that time and, in

order to “avoid future contradictions” the German authorities were not capable of sharing

information with the Argentine authorities. It was only in December 5, 2008, when an

agreement with Siemens had finally been reached, that the German authorities informed

the investigative magistrate in Argentina that the German Prosecutor would be glad to

49

receive him in Spring 2009. A few days later, the USDOJ and the SEC released the plea

agreements signed with Siemens.

Nonetheless, the US and German institutions ultimately made tangible positive

contributions to Argentine institutions’ efforts to respond to the misconduct of Siemens

and its collaborators. The high-profile plea agreements concluded between Siemens and

its subsidiaries in the US and Germany, reflected in the local press, created political

pressure to revive the Argentine criminal proceedings that had stalled in the face of

resistance from powerful local actors. The only substantive decision taken in 15 yeaars –

the indictment of December 2013–explicitely recognized that the investigation only

seriously considered a bribery charge after receiving the information from the US and

Germany and, in fact, around 80% of the evidence used to support the indicment was

collected abroad. In addition, the information set out in the plea agreements helped

Argentina to set the record straight in the ICSID proceedings concerning the civil

consequences of the ID cards contract. Finally, while it might ultimately turn out to have

been insufficient to lead to convictions, the information from the plea agreements also

appears to have been of at least some assistance in the local criminal proceedings.

Siemens paid more than US$ 200 million for its internal investigation and by accessing

the resulting plea agreements Argentina captured at least a portion of the value of that

investigation.

At the same time the ID Cards case shows that countries like Argentina are

capturing only a limited portion of the benefits generated when foreign institutions apply

transnational anti-corruption laws. The fact that Argentine authorities were not given

access to the report from the internal investigation is only one manifestation of this

50

phenomenon. Recall that the USA and Germany imposed roughly US$ 1.6 billion in

fines and penalties on Siemens for engaging in corrupt activities in Argentina and other

countries. That money was paid to the US and German treasuries and was not shared

with Argentina or any of the other countries whose officials were corrupted. This is not

an uncommon result in transnational anti-bribery prosecutions. A recent study shows that

between 1999 and 2012, approximately US$6 billion worth of monetary sanctions were

imposed on firms or individuals for engaging in transnational bribery but only 3.3 per

cent of that sum was eventually transferred to the countries whose officials were bribed

or allegedly bribed (StAR 2013).47

The TRT case provides more limited support for the notion that foreign

institutions provide valuable resources for local anti-corruption institutions. The key

contribution of the US courts in Miami and the Swiss Prosecutor was to give the

Brazilian state access to the assets transferred overseas by Nicolau dos Santos Neto. An

intriguing feature of the case is the way in which the foreign agencies complemented the

efforts of the Brazilian media as well Brazilian law enforcement agencies. Journalistic

reports published in April, 1999 triggered the Swiss investigation and the Miami

apartment was first revealed by Rede Globo.

Despite this evidence of institutional complementarity, the overall benefits from

foreign intervention in the TRT case were modest. The amounts of money recovered by

Brazil were insignificant, unlike cases in which assets of much greater value have been

recovered for the benefit of much smaller countries. In addition, the CPI uncovered

47 UNCAC only provides for sharing of confiscated proceeds of crime (Articles 51, 55 and 57).

51

evidence that funds from the National Treasury were transferred to accounts in banks

located in the Cayman Islands, the Bahamas, and Panama.48 These funds were not the

objects of any legal proceedings, suggesting that Brazil was not able to exploit all of the

possible opportunities to secure assistance from foreign institutions. At the same time,

the amounts that have been recovered may be significant to Nicolau dos Santos Neto and

other officials who hope to transfer the proceeds of corruption overseas. But without

knowing what portion of dos Santos Neto’s ill-gotten gains have been found that claim is

purely speculative.

The transnational dimension of the TRT case is particularly interesting because it

highlights how the interaction between foreign and local institutions can change over

time. Two changes seem particularly important. First, the case prompted Brazilian

officials to develop innovative techniques for recovering stolen assets from the US and

Switzerland (Soares 2013 and Ribeiro 2014). Second, the CPI’s report appears to have

played a role in motivating the Brazilian Congress to approve the cooperation agreement

with the United States.

5.3 The costs of foreign assistance

The benefits of assistance from foreign anti-corruption institutions should not be

assessed without taking into account the costs – foreign assistance sometimes comes at a

price.

The price to Argentina of the foreign proceedings against Siemens in the ID cards

case is uncertain. Although the Argentine investigation advanced as a result of the US

and German proceedings, the fact that no local actors have been punished risks

48 CPI 2000, 97 and 79; interviews 2, 3 and 9.

52

reinforcing perceptions of impunity and demoralizing the local population. It is possible

that bringing Siemens’ misconduct to light did Argentina more harm than good. It is also

possible that the foreign proceedings reduced the pressure on Argentine institutions to

respond to the misconduct of local actors. Our research cannot resolve either of these

issues.

In the TRT case the price of foreign assistance was more obvious, in the form of

the fees charged by the private lawyers retained by the Brazilian state to represent its

interests in the proceedings in Miami and Switzerland. Those fees were significant. For

instance, the confiscation of Nicolau dos Santos Neto’s apartment in Miami is hailed in

Brazil as an example of legal creativity and the potential for transnational asset recovery.

What is less well known is that the fees charged by the law firm which represented the

Brazilian state in that case almost equaled the entire amount recovered.49

The magnitude of these legal fees surprised Brazil and prompted it to explore the

possibility of retaining foreign lawyers on a contingency fee basis (see also Soares(2013:

311, 313). The costs of retaining private lawyers to recover assets from abroad may also

lead countries like Brazil to take a fresh look at the option of relying on assistance from

foreign law enforcement officials pursuant to the provisions of mutual legal assistance

treaties.50 We have received conflicting reports on the viability of this approach. One

American private lawyer we interviewed suggested that using mutual legal assistance

49 Interview 2 (14:36) and Interview 1 (20:12).

50 US mutual legal assistance treaties provide that a party to which assets have been forfeited may share

them with the other party “upon such terms as it considers reasonable” (Treaty with Argentina on Mutual

Legal Assistance in Criminal Matters, Art. 16:3) or “upon such terms as it deems appropriate” (Treaty with

Brazil on Mutual Legal Assistance in Criminal Matters, Art. 16:3).

53

mechanisms for the purposes of transnational asset recovery is slow and unreliable,

especially to the extent it involves securing cooperation from local assistant U.S.

Attorneys with little interest in or experience with such proceedings. This view was

shared by lawyers and prosecutors in Argentina. The U.S. Attorneys we interviewed had

a different view, claiming that mutual legal assistance was a relatively straightforward

process.51 It is, however, clear from the TRT case that when a criminal conviction is a

pre-requisite to the repatriation of assets through mutual legal assistance mechanisms the

process can take a very long time.52

5.4 Limitations of foreign anti-corruption institutions

The limited capacity of foreign institutions is on full display in the ID cards case.

Although the US and German institutions were able to impose record-breaking fines on

Siemens AG, to date they have done nothing to any of the individuals who received

corrupt payments from Siemens. The foreign proceedings attracted considerable attention

from the Argentine media53 and the media had, in turn, put local players under renewed

pressure by reinvigorating the local criminal proceedings. As mentioned above, this was

the most active period of investigation. So far, the only legal consequence has been the

arrest in 2011 of the Siemens director who orchestrated the bribery scheme. Given his

51 Soares (2013, 311) concurs.

52 This is why UNCAC recommends either waiving such pre-requisites (UNCAC, 57, 3) or using other

legal avenues for recovering assets (UNCAC 53).

53 The number of stories mentioning the case peaked with the anouncement of Siemens’ plea agreement

with the US and German authorities.

54

age, he is serving preventive detention at his luxury apartment located on the 40th floor

of one of the most expensive buildings of the city of Buenos Aires.

The ID cards case also points to the possibility that even if foreign institutions

succeed in discouraging transnational forms of corruption, the effect may be to encourage

a shift to more local varieties. The penalties imposed on Siemens are probably enough to

make any multinational corporation think twice before neglecting its obligations to

discourage its employees and agents from paying bribes to obtain public contracts. But if

multinational firms like Siemens are unwilling to pay bribes, contracts may end up being

awarded to local firms with less direct connections to multinational firms. This outcome

is not necessarily desirable for host states--it is not obvious that Argentina would have

been better served if the ID cards contract had been awarded to the consortium backed by

Yabrán.

The TRT case illustrates the fact that in many countries, and especially in large

middle-income countries like Brazil, a large proportion of corrupt activity is likely to

involve only local firms and local public officials. But the TRT saga also reminds us

how easy it is for these cases to take on transnational dimensions.

5.5 Accountability of foreign institutions

Our findings are consistent with the view that foreign anti-corruption institutions

are largely unaccountable to the general public in host countries. There is no sense in

which the US Department of Justice, the Munich Prosecutor, ICSID panelists, or the

Miami courts were accountable for their actions to the public in Argentina or Brazil. The

exception to this general proposition might be the World Bank which is at least formally

accountable to all of its members.

55

Our research also suggests that while it is dangerous to presume that local anti-

corruption institutions are significantly more accountable than foreign ones, meaningful

forms of accountability have developed at the local level in both Argentina and Brazil.

This is particularly true in Brazil, where the extensive array of institutions with the ability

to investigate and prosecute political corruption creates a ‘web of accountability’ (Power

and Taylor 2011). The initial investigation by the TCU obviously was not the end of the

TRT case. That decision was essentially second-guessed by a range of courts and

electoral institutions, as well as the media. The proceedings against the judge who

initially sentenced dos Santos Neto and his co-defendants are a reminder of ongoing

threats to the integrity of Brazil’s judiciary and senate, but also underscore the

effectiveness of the applicable accountability mechanisms.

The level of transparency of the Brazilian anti-corruption institutions leaves much

to be desired though. Most of the judicial proceedings in Brazil are under secrecy, in

marked contrast to the proceedings in the Miami courts. It was possible to obtain access

to some of the Brazilian court files through documents filed during appeals and uploaded

to the Court’s website. However, even then the complexity of the case and the sheer

volume materials serve to inhibit transparency. The documents filed only in the judicial

proceedings presented above totaled more than 45,000 pages.54

The situation in Argentina is somewhat different. In Argentina the appointments

and impeachments of judges and prosecutors are usually politically motivated and their

performance is not subject to regular evaluations. This situation of limited accountability

54 The TRT case encompasses hundreds of appeals. As of January 2013, 49 out of the 189 appeals relating

to Nicolau dos Santos Neto alone were still pending decision.

56

creates incentives and opportunities for judges to manipulate the progress of corruption

investigations for their personal benefit. At one point corruption investigations lasted an

average of 15 years and were typically concluded by the operation of the statute of

limitations. Troubled by this state of affairs, two Buenos Aires based NGOs devoted to

transparency efforts decided to make formal requests for access to the most prominent

ongoing corruption criminal files.55 Their main argument was that such delays gave rise

to impunity. They claimed that the way to challenge that impunity was to recognize the

existence of a collective right to understand the reasons for delay. The NGOs presented

their request in 90 different cases and in half of them the petition was rejected based on a

rule of criminal procedure establishing that the process is only accessible to the parties. In

the other half of the cases access to the file was granted with the consent of the

defendants. Ultimately, an appellate court upheld the second approach. The file for the

Siemens case was one of the many files to which these NGOs obtained access.

6. Conclusion

William Blake encourages us “to see a world in a grain of sand” (Blake, 1863).

There are obvious limits to what we can learn about a complex set of institutions by

examining their application to one or two incidents of wrongdoing. However, perhaps

because the institutions are so complex and their operations have attracted so little

scholarly attention, we have found it extremely enlightening to conduct our analysis at

this microscopic level.

55 Asociacion Civil por la Igualdad y la Justicia (ACIJ) and Centro de Investigación y Prevención de la

Criminalidad Economica (CIPCE). A couple of preliminary analyses of the cases to which the NGOs

obtained access are available at www.acij.org.ar.

57

At least in the microcosms represented by our two cases, the institutional

complementarity theory has considerable traction. In both cases important limits on the

capacity of local anti-corruption institutions were partially overcome with the assistance

of foreign institutions. In addition, in each case foreign intervention could have yielded

even greater financial benefits.

At the same time our findings also point to several challenges to the institutional

complementarity theory. For instance, in both Argentina and Brazil we found evidence

of important (positive) changes in the capacity and level of accountability of local anti-

corruption institutions over time, and those changes were prompted, especially in Brazil,

in part by local actors’ experiences in the cases we studied. These findings should

motivate further study of the role of learning-by-doing and critical cases in explaining

improvements in institutional capacity.56 As our Brazilian case shows, the greater the

capacity of local legal institutions, the greater the risk that defendants will confront the

burden of participating in multiple proceedings and that transnational proceedings will

add to that burden. Our Argentina case demonstrates that some defendants will face

multiple foreign proceedings arising from the same misconduct.

We also saw evidence of limits on the capacity of foreign institutions to affect

purely local actors and activities. A better understanding of those limits will be valuable

in informing proposals to extend the extra-territorial capacity of various institutions. For

example, there is longstanding controversy over whether countries like the US should

assert criminal jurisdiction over foreign public officials as well as the people who bribe

them.

56 Comparable studies of international criminal law include Burke-White 2005 and Sikkink 2011.

58

Other challenges to the institutional complementarity theory were more

surprising. For instance, before conducting our case studies we did not appreciate the

potential significance of the costs of engaging foreign institutions in anti-corruption

activities. The demand for and the costs of dealing with private lawyers were especially

surprising.

Finally, we were intrigued by indications that under certain conditions

engagement by foreign institutions can have negative rather than positive effects on local

anti-corruption efforts. For instance, the possibility that focusing on transnational forms

of corruption will have a displacement effect, in the sense that it will encourage corrupt

officials to focus on more local forms of corruption, deserves further empirical study.

Similarly, the possibility that the international regime designed to protect the rights of

foreign investors might end up protecting the rights of corrupt investors also merits

attention. We hope that our case studies will encourage future research in these and other

directions.

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66

Table 1 - News items about “Nicolau dos Santos Neto” in Folha de São Paulo

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

tota

l

News 1 35 256 99 23 21 24 16 8 14 7 1 2 5 5 517

Cove

rs - 3 18 4 1 - 2 1 - 2 - - - 1

0

32

Total 1 38 274 103 24 21 26 17 8 16 7 1 2 5 5 549

67

Table 2 –News items about TRT defendants in Folha de São Paulo.

Fábio

Monteiro de

Barros Filho

Incal

Incorporações

Monteiro de

Barros

Investimentos

Construtora

Ikal

Nicolau

dos Santos

Neto

1999–2000 41 26 1 10 312

1998–2012 52 26 1 13 549

68

Figure 1: Public officials and Siemens officials mentioned by La Nación